AFP A photo of the Syrian passport found near one of the suicide bombers in Paris, as seen on the front page of the Syrian magazine Blic on Nov. 15.

It has now been confirmed that one of the Paris suicide bombers reached Europe disguised as a refugee. Security officials had long felt that such a scenario was unlikely. How big is the risk?It hasn't taken long for the French authorities to begin learning details as to who was behind Friday night's terrorist attacks in Paris. Several of perpetrators, officials learned over the weekend, are from France, with two having most recently lived in Brussels and two more residing just outside of the French capital. Investigators believe that a 27-year-old Belgian man named Abdelhamid A. was the coordinator of the attacks, which cost the lives of at least 132 people at multiple sites in Paris on Friday evening.One piece of news regarding the attackers, however, has received a particularly large amount of attention. Not far from the corpse of one of the suicide bombers, a Syrian passport was found. On Monday, French authorities confirmed that the attacker traveled with the passport into the European Union via Greece as a refugee. The discovery would seem to confirm the fears of many in Germany and Europe that terrorists are among the hundreds of thousands of refugees currently streaming into Europe. According to a report on Greek radio, a second attacker may also be suspected of having traveled to northern Europe via Turkey and Greece. Thus far, however, there hasn't been an official statement given regarding the second case.At the moment, only the following is known: The finger prints of the attacker who blew himself up in front of the Stade de France stadium on Friday evening match those taken of the man as he traveled into Greece carrying a Syrian passport. The man, identified on the passport as Ahmad Almohammad, arrived in Greece at the beginning of October via the island of Leros, authorities say. Police officials say that the young man was registered there along with a group of 69 refugees. As part of the registration procedure, his fingerprints were taken, officials said.On Oct. 7, the 25-year-old, who called himself Ahmad Almohammad, entered Serbia from Macedonia and continued on to Croatia and Austria. The Serbian Interior Ministry issued a statement saying that he was not armed when he traveled through Serbia. According to French justice officials, however, the passport that he was carrying was falsified and had been prepared in Turkey.The confirmation that an attacker traveled into the EU as a refugee confirms a scenario that security officials had long thought possible, but unlikely. After all, Islamic State hardly needs to send assailants into Europe as refugees in order to carry out terrorist attacks on the Continent. Hundreds of Islamists from Germany, along with thousands from other European countries are currently in IS-held regions of Syria and Iraq of their own free will. Because they possess citizenships of European countries, they can return whenever they like. French officials said on Monday that at least three of the suspected attackers had spent time in Syria since the end of 2013 and subsequently returned to France. In addition, there are large numbers of extremists who grew up in Europe and are prepared to take part in violent attacks here. The attacks in Paris at the beginning of this year on the editorial offices of the satirical magazine Charlie Hebdo and on the Jewish supermarket Hyper Casher demonstrate as much. So too does the subsequent attack in Copenhagen, which saw a jihadist who had grown up in Denmark shoot two people to death.

Intended to Mislead?

But there remain a number of open questions. The true identity of the man who traveled into Greece as a refugee with the falsified passport isn't yet known. There are many possibilities. One is that he wasn't a Syrian at all. He may have been an Islamist known to European security officials and who had joined the Islamic State in Syria. For such an Islamist, it may seem easier to enter Europe as a refugee under an assumed identity -- because Syrians who arrive in Europe are almost guaranteed of being granted refugee status.But there are other questions as well. Why, for example, was the attacker carrying a passport at all? It looks as though Islamic State wanted the passport to be found, which would play into the hands of Islamic State, which has claimed responsibility for the Paris attacks, in two ways. First, it would increase fears in the West due to the large numbers of refugees currently arriving, and it would further divide European society. Secondly, it would discredit the refugees themselves. For Islamic State, refugees are traitors for fleeing the country rather than joining Islamic State for the establishment of a Caliphate.The passport also raises questions when it comes to the coordination of the terror attacks as well. Most of the attackers were French, that much has become clear. As such, it wasn't a fake refugee who brought terror to Europe. The chief coordinator is thought to be a Belgian man. It is unclear how an attack could have been prepared and organized with an attacker who had only been in Europe for a few weeks. But here too, the available information is sketchy. On Monday, the French government said that the attacks appear to have been planned in Syria.German security officials had repeatedly emphasized that they had no reliable evidence that jihadists were entering Europe as part of the inflow of refugees. At the same time, nobody was prepared to rule out such a scenario either. Currently, German officials are investigating just 10 cases of refugees who are suspected of having fought for Islamic State in Syria. The refugees are being investigated on suspicion of belonging to a terrorist organization. But that doesn't mean that the men came to Germany with the intention of carrying out attacks here.There can be no complete protection against the possibility that terrorists are among the refugees. According to information obtained by SPIEGEL ONLINE, only a fraction of the refugees who enter Germany are processed with the help of the so-called "Fast ID," a digital system that compares fingerprints taken at the German border with those saved on German government databases. Furthermore, "normal" IS fighters cannot be discovered using this form of security check because they have almost never been previously registered as such. Checks run by German police focus more on European jihadists who are known to authorities. For information on foreign fighters, German investigators are dependent on intelligence information -- indications gleaned by the US from emails, phone conversations or chats, for example, that a certain jihadi may have left Syria. In such instances, however, police work is necessary to find them, particularly if they are traveling on falsified documents. Simply closing Europe's or Germany's borders, as has frequently been demanded in recent weeks, wouldn't offer much protection.

NEW YORK – The attacks in Paris by individuals associated with the Islamic State, coming on the heels of bombings in Beirut and the downing of a Russian airliner over the Sinai Peninsula, reinforce the reality that the terrorist threat has entered a new and even more dangerous phase. Just why the Islamic State decided to stage its attacks now is a matter for conjecture; it may well be that it is going global to compensate for its recent loss of territory in Iraq. But whatever the rationale, what is certain is that a clear response is warranted.

Actually, the challenge posed by the Islamic State calls for several responses, as there is no single policy that promises to be sufficient. Multiple efforts are needed in multiple domains.

One is military. More intense attacks from the air against Islamic State military assets, oil and gas facilities, and leaders is critical. But no amount of air power on its own will ever get the job done. A substantial ground component is needed if territory is to be taken and held.

Unfortunately, there is no time to build a partner force on the ground from scratch. This has been tried and failed, and Arab states are unable or unwilling to constitute one. The Iraqi army has also come up short. Iran-backed militias only make matters worse.

The best option is to work more closely with Kurdish troops and select Sunni tribes in both Iraq and Syria. This means providing intelligence, arms, and being willing to send more soldiers – more than the 3,500 Americans already there, and possibly on the order of 10,000 – to train, advise, and help direct a military response.

Such an effort must be collective. It can be informal – a “coalition of the willing” that would include the United States, France, the United Kingdom, Arab states, and even Russia under the right circumstances – or carried out under NATO or United Nations auspices. The packaging matters less than the results. Symbolic declarations of war, though, ought to be considered with caution, lest the Islamic State appear to be winning every day it does not lose.

A diplomatic component is no less essential to any response. Syrian President Bashar al-Assad is a recruiting tool for the Islamic State and must go. But any successor government must be able to maintain order and not permit the Islamic State to exploit a power vacuum, as it has done in Libya.

Moreover, orderly political change can be brought about only with Russian and Iranian support. One near-term option worth exploring is a coalition government still headed by a representative of the Alawite minority, a concession that could well be the price of moving Assad out of power. In principle, and over time, a more representative national government could come about, although talk of holding elections in 18 months is fanciful under any scenario.

But reaching a compromise along these lines could well be impossible. This is why increased military effort is needed to bring about larger and more secure enclaves that could better protect civilians and take the fight to the Islamic State. Syria is not a normal country in any sense, and it will not be for a long time, if ever. A Syria of enclaves or cantons is a more realistic model for the foreseeable future.

Other indispensable elements of any effective strategy include expanded help for or pressure on Turkey to do much more to stem the flow of recruits to the Islamic State. And Turkey, along with Jordan and Lebanon, need more financial assistance as they shoulder the bulk of the refugee burden.

Arab and Muslim leaders can do their part by speaking out to challenge the Islamic State’s vision and delegitimize its behavior.

There is also a domestic dimension to policy. Homeland security and law enforcement – increasing protection both at borders and within them – will have to adjust to the increased threat. Retail terrorists – individuals or small groups carrying out armed attacks against soft targets in open societies – are extremely difficult to deal with. The threat and the reality of attacks will require greater social resilience and quite possibly a rebalancing of individual privacy and collective security.

What is also required is a dose of realism. The struggle against the Islamic State is not a conventional war. We cannot eradicate or destroy it any time soon, as it is as much a network and an idea as it is an organization and a de facto state that controls territory and resources.

Indeed, terrorism is and will continue to be one of the scourges of this era. The good news, though, is that the threat posed by the Islamic State to the Middle East and the rest of the world can be dramatically reduced through sustained, concerted action. The main lesson of the attack on Paris is that we must be prepared to act over time and place alike.

The recent terrorist attacks are sadly only the latest bloodletting in the French capital’s long and brutal history.

By David A. BellDavid A. Bell is the Sidney and Ruth Lapidus professor in the era of North Atlantic revolutions at Princeton University.

“Here fell, for the liberation of Paris, on Aug. 22, 1944, André Gardelle, 21 years old.” “Here fell, for the liberation of Paris, on Aug. 28, 1944, Roger Lambert, 19 years old.” “Here fell, for the liberation of Paris…”

The small, dignified plaques are everywhere in the center of Paris, monuments to the Parisians who gave their lives in rising up against the Germans as the allied armies approached, two-and-a-half months after D-Day. And they are almost the only official signs, along the opulent, bustling boulevards of the French capital, that throughout history this city has seen more than its share of spectacular violence.For the most part, the physical scars of this violence have been erased, and the monuments to it are discreet. Paris successfully, and understandably, presents itself as a city of peace, of elegance, and of sophisticated civilization — a city whose inhabitants have exorcised its violent past, banished it to the museums and history books. But history can play some exceptionally cruel tricks, and a city that wanted so badly to overcome the most difficult and divisive aspects of its legacy has again, this past week, found itself the scene of fanaticism and slaughter.Of course, the traces of earlier episodes of violence remain, just under the surface. Not far from where several of last Friday’s terrorist attacks took place, the massive column at the center of the Place de la Bastille provides no explicit reminder of the pitched battle that took place on the site on July 14, 1789, and that marked the first great popular victory of the French Revolution. The Bastille fortress and prison that the Parisians stormed on that date were soon demolished, and the column commemorates a later, smaller revolution, that of 1830. It does so without reference to bloodshed. But the very name Bastille remains resonant, for anyone who has ever opened a French history book.Few of the visitors who throng the great, open courtyard of the Louvre know that until 1871 the space was closed off by another palace, the Tuileries, which gave its name to the adjacent gardens. The Tuileries burned that year during the final convulsions of the Paris Commune, whose radical left-wing government was brutally suppressed by conservative republican forces in the turmoil that followed France’s defeat in the Franco-Prussian War. The magnificent Hôtel de Ville, Paris’s city hall, on the banks of the Seine burned as well — the building that stands there today is a copy of the older structure. But particularly attentive visitors may note an inscription inside the gaudy basilica of Sacré-Coeur, which peers down at Paris from the heights of Montmartre and stands as a monument to the reactionary French Catholicism of the late 19th century. The structure, it explains, was built “to expiate the sins” of the commune — in particular the radicals’ execution of the city’s archbishop.The revolution and the commune are only two examples of the spectacular violence that has regularly punctuated the life of Paris in modern times. It has occurred for many different reasons, including war against external enemies. Sometimes, it has occurred for very good reasons: to end oppression and establish liberty. But it has occurred again and again, and has most often been inflicted by French people upon themselves, in a pattern that has challenged generations of scholars. (The great sociologist Charles Tilly even called one of his books The Contentious French.)And from this historical perspective, the horrors of Nov. 13, however shocking and unnatural they appear, also represent the terrible continuation of a very old story. It now appears that some of the attackers came from the Middle East. However, following the pattern of the January attacks on Charlie Hebdo and the Hyper Cacher market, some were French citizens, and other French citizens helped them. The scourges of the past may have been overcome, but new ones have developed to take their place.Religion has provided some of the oldest, as well as the newest, pretexts for slaughter in the heart of Paris. At the height of the Reformation-era French Wars of Religion, on Aug. 24, 1572, streets near the Louvre resounded to screams of terror as Catholics massacred thousands of Protestants in the gruesome St. Bartholomew’s Day Massacre. Sixteen years later, as the wars raged on, the fervently Catholic city rose up against the insufficiently zealous King Henry III, as militants of the Catholic League built barricades out of paving stones, carts, and furniture and drove out the royal army. Before peace finally returned, the city was forced to endure a long and painful siege by the new, Protestant King Henry IV (who eventually converted to Catholicism himself to bring the wars to an end).In the middle of the 17th century, in yet another prolonged episode of civil war (non-religious, this time), the barricades went up again, and the young King Louis XIV fled the capital. The king’s resentment of Parisians never entirely vanished, and he deliberately built his magnificent palace of Versailles at a safe, 12-mile remove from the city center.During the French Revolution, spectacular violence did not end with the fall of the Bastille in 1789. Three years later, on Aug. 10, 1792, a larger battle took place around the Louvre and the Tuileries, as militant “sans-culottes” and volunteer revolutionary National Guardsmen fought King Louis XVI’s Swiss Guards in a battle that took well over a thousand lives. The result was the king’s arrest and the end of the French monarchy (at least for a time). And just a few weeks after that, the threat of a Prussian invasion led sans-culottes to storm the city’s prisons and summarily execute around 1,300 suspected counter-revolutionaries. Full-fledged civil war threatened the city at several other moments during the revolution. At one point, Maximin Isnard, a deputy to the National Convention, warned that if the sans-culottes did not stop threatening elected representatives, then Paris would be “annihilated” and soon “people will be searching along the banks of the Seine to see if Paris ever existed.”Although Napoleon Bonaparte came to prominence in part by helping to lead the bloody suppression of royalist rioters just a few blocks from the Louvre in the fall of 1795, the massive wars he waged in subsequent years across Europe left Paris relatively untouched. The Russian occupation of the city after Napoleon’s defeat in 1814 caused little destruction.The 19th century, however, saw the city’s peace broken time after time. Barricades arose during the brief Revolution of 1830 (which toppled the restored Bourbon dynasty and brought King Louis-Philippe to the throne) and again in 1832, in the abortive uprising commemorated by Victor Hugo in Les Misérables. In 1848, yet another revolution saw the creation of a new, unstable French Republic, and between June 23 and June 26 of that year, its conservative government savagely suppressed a left-wing uprising. Extensive street fighting throughout central Paris took more than 4,000 lives. Even more died during the suppression of the Paris Commune in 1871, including the execution of 147 commune fighters in the Père Lachaise Cemetery at the end of the so-called semaine sanglante, or bloody week. And in 1894, in a frightening harbinger of the 20th and 21st centuries, self-proclaimed anarchists carried out some of the first modern terrorist attacks in Paris, including a bombing of the café at the Saint-Lazare train station.Unlike so many European cities, Paris largely escaped massive destruction during World War I and II. Even so, during the first half of the 20th century, external enemies left their violent mark. During World War I, the German army deployed artillery capable of hitting the city from behind the front lines at a distance of 75 miles (the 234-pound shells reached an altitude of nearly 140,000 feet, the greatest yet attained by a man-made object). The attacks caused hundreds of casualties, including 88 people killed while worshipping at the Church of Saint-Gervais on March 29, 1918. In World War II, the city endured limited aerial bombing and then the uprising by the French Resistance against the German occupiers in 1944. Still, all in all, the destruction was on a far smaller scale than that experienced by Warsaw, or London, or major German and Soviet cities. The 1944 street battles commemorated by the memorial plaques resulted in the deaths of fewer than 2,000 people. The retreating German army made elaborate plans to destroy Paris’s principal monuments and set explosives throughout the city — but in the end refrained from detonating them.Paris has never again faced the sort of threat it did during World War II, but spectacular violence has nonetheless continued to occur at regular intervals, for many different reasons. During the Algerian War of Independence, renegade French army officers threatened a coup d’état and the possible armed seizure of the city. On Oct. 17, 1961, Parisian police massacred as many as 200 Algerian demonstrators, with many of their bodies thrown into the Seine. The massive civic unrest of May 1968 saw barricades go up one more time, and events briefly appeared so threatening that President Charles de Gaulle fled to a French military base in Germany. And since the early 1980s, terrorists have struck Paris repeatedly. From 1985 to 1986, members of a pro-Iranian Lebanese group carried out a series of attacks that killed 13 people and wounded nearly 250. Algerian terrorists killed eight in 1995 and nearly succeeded in bombing the high-speed “TGV” train. Jewish targets have suffered many times, including a Parisian synagogue where four people were killed in 1980. The city’s poor suburban areas have been repeatedly shaken by large-scale rioting by disaffected, largely Muslim youths — most spectacularly in 2005, when thousands of cars were burned and dozens of rioters and police injured. And then, of course, there were the attacks against Charlie Hebdo and the kosher market in January.The Nov. 13 attacks cannot, of course, be explained within the French context alone. They form part of a much larger struggle. France, with its large Muslim population and a much smaller, but still significant, population of Muslim extremists, may be for the moment the epicenter of terrorism in Europe. But attacks have taken place in many other countries and will almost certainly continue to do so. Despite the carnage of Nov. 13, the single deadliest series of terrorist attacks in Europe since 9/11 remains the 2004 Madrid train bombings, which took even more lives.

But the Nov. 13 attacks do show again how horribly, despairingly difficult it has been for this most beautiful of cities to escape from the sort of spectacular violence that has haunted it throughout nearly all its history. Even as older sources of terror and strife seem to be overcome, new ones arise to take their place. They have now produced yet another dreadful Parisian semaine sanglante.

Recently, I received an article by Alasdair Macleod, entitled “Economics of a Crash.” It’s an excellent overview of what’s to come over the next few years.

In reading the article, I was particularly taken by this reference:

…we can more easily imagine central bankers being drawn into repeating the mistaken policies of Rudolf Havenstein, president of Germany’s Reichsbank in 1921-1923. In predicting this final crisis for any country that treads down the path of government corruption of its money, the economist von Mises described its manifestation as a crack-up boom, the boom to end all booms, when ordinary people finally realise the worthlessness of government currency and dump it as rapidly as possible for anything they can get hold of.

Herr Havenstein is a forgotten man today, but he should not be. What he did as President of the Reichsbank in his day should not be forgotten, as the same conditions that existed in Germany back then are just around the bend once again.

With the coming market crash (what we’ve witnessed recently is just a preview of what’s yet to come), we shall see significant deflation. The central banks, particularly the U.S. Federal Reserve, have for years promised that if deflation rears its ugly head, as it did following the 1929 crash, they will not hesitate to print money unceasingly until the problem is solved. Money creation will be possible at a rate never before seen in history. In 1922-1923 Germany, it was necessary to physically print bank notes and distribute them. Today, all that’s necessary is to type credits into a computer. Billions can be created overnight.

When this money creation first occurs, there will be prominent support from the media that the central banks are doing what’s necessary to combat deflation. Everyone will support the idea, just as they did in Germany in the 1920s. Trouble is, it won’t work.

One reason deflation takes place is due to a fall in aggregate demand. An economic crash creates a fear of spending, resulting in lower prices for goods and services. A major crash creates major fear, one that’s unlikely to be overcome by increasing the money in circulation. People will praise the increase in money, whilst continuing to avoid major personal spending. They instead will focus their spending on necessities, such as food, fuel, clothing, etc. The less necessary an item is, the less likely there will be purchasers. As a result, the price of such items will fall.

Any asset that’s a luxury - boats, motorcycles, luxury homes, etc. will become difficult to unload, causing repeated drops in the asking prices over time.

Money creation will seem to be a good solution, as it suggests that people will have more of the stuff to spend, but overcoming the fear will take considerable money creation. And money creation has a habit of creating a greater increase in the prices of those goods that people are already focusing their spending on, like consumable commodities. Therefore, commodities will rise in price whilst assets will remain down.

Since the problem of deflation has not been solved, the central banks will do the only thing they know how to do, create even more money, which in turn creates more price increases in those commodities. Along the way, wages will need to rise to allow people to pay the new, higher prices but, historically, wages never keep pace when dramatic money creation is undertaken.

The net result is that the average individual will find it harder and harder to put food on the table and fuel in the car, and, in order to cope, will lower the asking price on the assets he’s still trying to unload, which of course signals the central banks that more money creation is needed.

Historically, this cycle never ends well, but how bad can it get? If we’re fortunate, the fear will be broken at some point by the creation of money. But before we heave a sigh of relief, it’s important to recognise that this happens rarely. And, to my knowledge, it has never happened in an instance in which the cause of the problem was insurmountable debt.

After World War I, under the Treaty of Versailles, the war’s victors forced Germany to accept a repayment burden for causing the war. The debt level, as it was assessed, was so great that it was virtually impossible to pay. The German people were taxed to a degree that made it difficult to afford necessities. They responded by offering for sale any assets they felt they could do without.

Enter Rudolf Havenstein, new President of the Reichsbank. Herr Havenstein set about the creation of more money and was widely praised for his action. This caused price increases in commodities, so he created more Papiermarks (the name for the German currency at the time) so that people could pay the increased prices. But the cycle described above kicked in. He then did the only thing he knew how to do, he kept printing.

Thus began “The Delirium of Milliards,” Milliard being a term for billions. Prices of goods and services rose more and more quickly, as more money was supplied. By mid-1923, hyperinflation was in full swing. Prices rose daily and workmen were paid several times a day to allow them to spend the money, to get rid of it, buying anything tangible, to avoid holding the rapidly inflating fiat currency. Even though bills were printed in ever-higher denominations, people eventually needed baskets, even wheelbarrows, of bank notes to pay for daily needs. Eventually, it took 200 Five Milliarden Mark notes like the one pictured above, issued in Berlin in 1923, to pay for a loaf of bread.
It’s important to recognise that Herr Havenstein received full support from everyone for his actions, the government, the war’s victors, the communist party, Hitler’s growing contingent, and the people themselves all supported the printing, as it was clearly the most immediate approach to the problem.

Unfortunately, just as more heroin is the most immediate approach to the problem of heroin addiction, the printing of Papiermarks was headed toward an overdose.

But, along the way, the hyperinflation created chaos throughout society. It brought out the worst in everyone, fear, greed, panic, class hatred, and corruption.

Farmers produced bumper crops, but were loath to accept Papiermarks for their goods. Storehouses were full, but people in cities starved. City-dwellers rode out to the farms on their bicycles in gangs, stealing food and killing farmers and any livestock that they couldn’t carry with them. Gluttony became a legally punishable offense. Unlimited fines were imposed upon anyone deemed to be hoarding.

Demands rose from many factions for a redistribution of wealth, each group thinking that the others should pay more. Transfer of funds was made illegal without government authorisation. All German capital abroad was confiscated. Social entitlements received diminished increases until the amounts being paid became worthless. The taxation system broke down. No one knew what to charge or what to pay.

New banknotes were being delivered daily in boxcar loads. In October 1923, banknote circulation amounted to 2,496,822,909,038,000,000 and everyone called for more.

It is this last fact that is most telling, that every group believed that the solution was simply more money. They failed to grasp that what was needed was to simply cease all manipulation of the system and let the free market return. Their failure assured that the only possible outcome was the collapse of the system.

And so, as crazy as the above seems, it’s likely to happen again, as human nature is the same today as in 1923. Whether the extreme of hyperinflation will occur, we can’t be sure. What is certain however, is that each of us should be prepared.

Following Friday's 'blockbuster' jobs report, November 6th, 2015, the markets are finally coming around to taking the FED seriously once again. The Dollar Index had enjoyed a steady and a strong rally for the past 18 months, since July of 2014 as the Federal Reserve started to communicate to the markets, its intention to wind down the massive Quantitative Easing or QE3 involving purchasing Mortgage Backed Securities and US treasuries to the tune of $85 billion.

The FED’s intention to take away the 'Punch bowl' in the aftermath of the 2008 Global Financial Crisis was met with a lot of doubt, with most of the markets expecting the FED to only come back with more QE. However, as the FED started to slowly wind down its purchases by $10 billion since December 2013, the US Dollar started to rise steadily.

By early 2015, the FED signaled that the era of accommodative monetary policy, which saw interest rates at historical lows was coming to an end. For most of 2015, the main driving theme was that the FED was going to hike rates this year. The initial deadline was set for mid-2015 or around June/July this year. However, the plans were thwarted as inflation remained consistently low below the FED’s target rate of 2.0% while the unemployment rate was slowly but steadily declining towards the FED’s 5.0% full employment mandate.

Friday's October jobs report, November 6th, 2015 finally saw the FED reaching one of its two goals, full employment, as the US unemployment rate fell to 5.0%. It was a 'blockbuster' jobs report for the mere fact that after a string of two weak months, the average jobs increased by 271k, beating the median estimates and also the average hourly earnings saw a strong increase, rising to an annualized 2.5%.

It was only a few days ago last week that Dr. Janet Yellen testified to the US Senate banking committee that the FED intends to decide on whether to hike rates at the December 2015 meeting, if the data supported the view, and indeed there was a strong validation from the jobs market last week. It’s a real “live possibility.”

Precious metals and commodities on the other hand continued to suffer at the cost of a stronger US Dollar as the Global economy stepped into a prolonged era of deflation, exacerbated by the Oil crash in 2014 which saw production outstripping demand bring Oil prices from the above $100 a barrel to trade near $40 a barrel.

So where do I believe we go from here and more importantly what is the outlook for the US Dollar now that December 2015 rate hikes has increased in probability?

Points to bear in mind:

The FED held off hiking rates in June and later in September as inflation remained subdued. Back then the unemployment rate was around 5.4%

There is still one more jobs report to go in November 2015; however the chances that this jobs report will upset the FED’s plans are very low. As long as unemployment rate remains within 5.1% - 5.0% and the average monthly jobs fall below 180k it would still be an ‘OK’ jobs report. In other words, only a ‘worse’ jobs report (similar to the one seen in March this year) would throw a wrench into the Works

Inflation still remains a concerns, but the FED is betting on the ‘Phillips Curve’ a theory which shows an inverse correlation between unemployment rate and inflation and with the unemployment rate at 5.0%, the FED hopes that inflation will start to move

Technical Analysis – US Dollar Index

The monthly chart for the US Dollar Index (99.15) shows the potential bias staying to the upside.

After prices hit the 100 psychological resistance level in March this year of 2015, price closed lower a month later with a bearish engulfing candle. Technically, this should have seen prices move lower, but instead I witnessed a sideways price action for nearly 6 months since April 2015. In the process, the US Dollar Index formed a triangle pattern with the current monthly candlestick breaking out from the range.

US Dollar Index – Technical Outlook

I anticipate that another retest to 100 is in the cards in the near term but I expect to see a pullback towards 97.19 through 96.28, ideally by December. The measured move off the triangle pattern points to two targets of 104.8 which mark the 161.8% move from the triangle's high to the base and 200% move at 107.53. Incidentally, these two levels mark a strong resistance level validating the move to the upside.

Conclusion: The US Dollar Index is expected to make a pullback to 97.19 – 96.28. If prices hold above this level, the US Dollar Index could potentially break out above 100, targeting 104.8 and eventually to 107.53

Technical Analysis – Comex Gold Futures

On the monthly chart for Gold (1087.70), I witnessed sideways price action for the past three months after Gold posted a strong bearish pattern in July this year, closing at 1094.9. This month, as of last week, Gold broke below the 1094.9 level, but a monthly close below 1094 is needed for a confirmation of a bearish continuation pattern. So, for the moment, the downside bias is neutral.

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Comex Gold Futures – Technical Outlook

I noticed a short term resistance area near 1141/1130 while a recent low is formed near 1072. A break below 1072 (on a monthly session) could see the bearish momentum takeover, sending prices to 1042/1030, which marks a test to the lower end of the price channel.

As long as 1072 holds without a monthly close below this level, Gold could see a short term reversal to 1200 above support at 1141/1130. A retest then to 1200 would establish 1200 – 1223 as a resistance level opening up the way to a decline lower below 1072.

Conclusion: Gold prices look to be bottoming for now, but a pullback to 1200 – 1223 is in the cards and the bias remains to the downside, for a break below 1072, which will open up the declines to 1000 and lower. Watch the month end closing prices in Gold, as a bearish close at current level of 1087 could form a shooting star pattern hinting at further downside weakness with no hopes of any recovery above 1141/1130.

Forecasts – Gold and US Dollar

The following are the near and medium term outlook for Gold and US Dollar*.

Nov’2015

Dec’2015

Q1 – 2016

Gold

1130 – 1140

1223 – 1200

1087 - 1000

US Dollar

99.25 – 97.2

97.25 – 96.28

100 - 104

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Key Takeaways

•With the October 2015 jobs report showing the US economy reaching full employment, the FED has no further reason to delay rate hikes. Focus will shift from 'when' to the 'pace' of the rate hikes, which will be important. Assuming that the emerging markets do not throw yet another tantrum, the December 2015 rate hike decision could be an almost done deal, as long as the November 2015 jobs report does not disappoint. Even an 'OK' jobs data in November 2015 is sufficient to keep the rate hikes alive for December 2015.•Watch the inflation (CPI and PCE) numbers in the remaining 6-weeks. Even a modest pickup or at worst, unchanged data is sufficient for the FED to proceed with rate hikes.•The US Dollar has historically risen strongly ahead of the FED rate hike cycle and then drops, while Gold tends to fall before the rate hike cycle and then rallies.•A key risk to consider is that the FED remains the lone Central bank amongst the developed economies to surge ahead with rate hikes. The New Zealand Central bank went through this cycle since last year but the New Zealand economy could not sustain rate hikes resulting in a rather quick cycle of rate cuts. With inflation staying low, the FED will no doubt focus its communication on being as soft and slow as it can with rate hikes in hopes that inflation will pick up sooner than later.Being on the higher end of the rates will give the FED some breathing space to scale back should the US economy start to show signs of weakening (which starts as soon as Q1 2016 where the US economy generally posts the weakest quarterly growth in economic activity).

If you know the other and know yourself, you need not fear the result of a hundred battles.

Sun Tzu

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.